Still working exception lets 87-year-old delay $2M in RMDs for 17 years

An IRS rule lets workers postpone required minimum distributions from workplace retirement accounts indefinitely — as long as they stay on the job.

Fuller Bazer, an 87-year-old distinguished professor at Texas A&M University, has never taken a required minimum distribution from his $2 million tax-deferred retirement account, using an obscure IRS provision known as the still working exception. The rule, codified under Internal Revenue Code Section 401(a)(9)(C), allows employees to delay RMDs from 401(k) and 403(b) plans at their current employer as long as they remain on the payroll.

"He would have had to pay at a high rate because of his income," said Natalie Pine, Bazer's financial advisor, noting his $328,000 annual salary would have pushed RMD withdrawals into the top marginal bracket. Bazer, a reproductive biologist who earns his salary as a distinguished professor, said he did not need the money and wanted his account to keep growing.

The exception applies only to the retirement plan of the employer where the worker remains employed, provided they do not own at least 5% of the business. Bazer has deferred RMDs for 17 years — since turning 70.5, the previous RMD age under pre-Secure Act rules. The current RMD age is 73 for most retirees under the Secure 2.0 Act, rising to 75 by 2035. The custodian of the account could still require distributions even if the IRS does not, noted David Frisch, a CPA and financial advisor in New York and Florida.

The tax break does not eliminate RMDs — it delays them, meaning distributions will be larger when the worker finally retires. "It gets to the point where I sometimes call out the RMD being a bigger bomb when it hits," said Jim Bradley, a financial advisor in Bangor, Maine, who has advised some clients that taking the RMD now may be preferable.

A Growing Cohort of Older Workers

The exception is little known but increasingly relevant. In 2020, 8.9% of Americans over 75 were still working, a share the Bureau of Labor Statistics projects will rise to 11.7% by 2030. The last time labor force participation among this age group was this high was before the 2008 financial crisis, when it stood at 7.2% in 2007, according to BLS data.

Workers must still take RMDs from individual retirement accounts and from 401(k) or 403(b) plans at former employers. A workaround exists: rolling over those assets into the current workplace plan, though eligibility depends on the plan's rules. The IRS does not require a minimum number of hours worked — only that the person be a current employee.

Frisch said most seniors do not know about the exception. "We saved a couple of clients a whole lot of money by doing this," he said.

The Deferral Trade-Off

Michael Robbins, 78, an associate professor of psychology at the University of Maine, used the exception to delay RMDs from his $1.4 million retirement account. When he turned 70.5, the account held $750,000. Had he retired then, the lower balance would have left him more vulnerable to market downturns, he said. Now retiring this year, he said the account is "not likely to be depleted" and provides enough for both his security and bequests to heirs.

Joseph Favorito, a financial planner in Melville, New York, had a client earning a large salary who worked into his late 70s. "Since he was in a pretty high tax bracket, I didn't want to add in that additional income," Favorito said.

The decision hinges on current versus expected future tax rates. For workers in peak earning years, deferring RMDs can avoid compounding income at the highest marginal rate. For those expecting lower income in retirement, taking distributions earlier may be more efficient. The last time the top marginal rate was this high relative to expected future rates was in 2017, before the Tax Cuts and Jobs Act lowered individual rates through 2025.

This article is for informational purposes only and does not constitute investment advice.